No Outage for Bush

Utilities' Cash-Transmission Lines Work Great

As he took office during the California energy crisis in 2001, President Bush declared, "If there's any environmental regulations that's preventing California from having 100 percent max output, then we need to relax those regulations." Among his energy advisers at that point was Ken Lay, CEO of Enron.

When the power went off in New York two weeks ago, Bush came out of his bunkhouse in Crawford to say the blackout was a "wake-up call." Nobody knew what that meant until late last week, when Bush did what he had wanted to do in California: relax environmental regulations, including emission standards on power plants. That means utilities and other industries can upgrade their plants without being required to install expensive equipment to fight air pollution. That ought to free up enough cash for improving transmission lines, which the industry says it needs to avoid more blackouts.

To all appearances, Bush looks like the dimmest bulb in the closet, but just about everything he promotes comes to pass. It is unclear whether reduced emissions standards will be enough to resuscitate the floundering FirstEnergy Corp., the prime blackout suspect, but if the past is any guide to the future, it ought at the very least to free up some more dough for Bush's re-election campaign. FirstEnergy is among his most active political supporters.

FirstEnergy remains the main target in the blackout probe, but an equally important culprit may turn out to be the giant American Electric Power Co., whose territory is to the south of FirstEnergy and accounts for half the power in the state of Ohio. AEP is the single largest generating system in the country. It also owns one of the big transmission lines that went out of service and which investigators are eyeing as a potential cause of the problem.

An internal report from the Public Utilities Commission of Ohio, which The Wall Street Journal got a look at last week, said that the commission had granted the company $88.5 million more in rate increases between 1992 and 2001 to help pay for the upkeep of its transmission lines but that the company never actually did the maintenance. Customer complaints at AEP's Ohio utilities doubled from 2001 to 2002. According to the report, some outages occurred because the company used a subcontractor who flew a helicopter equipped with a big blade to trim trees, but because the pilot couldn't control the blade, the chopper actually severed the power lines instead.

On its website, the company denied any wrongdoing, contended that the documents were internal working papers, and declared, "Although we have been working hard to control costs through process improvements and reduced overheads, we have continued to increase maintenance spending on our distribution facilities and are committed to ongoing dialogue with the PUCO regarding customer service issues." At the same time, the company released its own timetable of events leading up to the blackout, which, if true, would absolve it of responsibility. Industry data suggests that New York blacked itself out, closing its transmission borders when power irregularities appeared in the Midwest.

Controversy cloaks AEP's operations. In documents filed with the Securities and Exchange Commission, AEP reveals that it is being sued in Federal District Court in Ohio by stockholders alleging that the company overstated its revenues, "and that we failed to disclose that our traders falsely reported energy prices to trade publications that published gas-price indices and that we failed to disclose that we did not have in place sufficient management controls to prevent . . . false reporting of energy prices." Two other stockholder suits charge that the company lacked adequate internal controls over its gas-trading operations, and earlier this year three other suits were filed charging the company violated federal laws in "the selection of AEP stock as an investment alternative." The company has denied all these accusations.

It's hard to imagine that the Bush campaign wants to discomfit FirstEnergy with an election coming up. FirstEnergy president Anthony Alexander raised $100,000 for Bush in 2000, making him a Bush Pioneer, and CEO H. Peter Burg hosted an event this June that raised more than half a million dollars for Bush-Cheney '04. (It cost $1,000 a head to get into the shindig, and another $1,000 to have your picture taken with VP Dick Cheney.) In addition to being a Bush Pioneer, Alexander was also elected to the Republican National Committee's star-studded Team 100 for raising $250,000 for the GOP in 2000. The utility exec ponied up yet another $100,000 to help pay for parties at the 2001 inauguration.

All in all, FirstEnergy ranks sixth among electric utilities in overall political donations. AEP, on the other hand, made political contributions to federal candidates of $416,600 during the 2002 election cycle, with 67 percent going to Republican candidates. It came out a modest 16th in the rankings.